Free Response in Opposition to Motion - District Court of Arizona - Arizona

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BEUS GILBERT PLLC
ATTORNEYS AT LAW

4800 NORTH SCOTTSDALE ROAD SUITE 6000 SCOTTSDALE, ARIZONA 85251 TELEPHONE (480) 429-3000

Leo R. Beus/002687 ­ [email protected] Scot C. Stirling/005757 ­ [email protected] Steven E. Weinberger/015349 ­ [email protected] Attorneys for Individual Plaintiffs and Trustee

STEVE BROWN & ASSOCIATES, LLC
1414 E. INDIAN SCHOOL ROAD, SUITE 200 PHOENIX, ARIZONA 85014-2412 TELEPHONE (602) 264-9224

Steven J. Brown/010792 ­ [email protected] Co-Counsel for Trustee UNITED STATES DISTRICT COURT DISTRICT OF ARIZONA DIANE MANN, as Trustee for the Estate of LeapSource, Inc., CHRISTINE V. KIRK, et al., Plaintiffs, vs. GTCR GOLDER RAUNER, L.L.C.; et al., Defendants.
Case No.: CIV-02-2099-PHX-RCB

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PLAINTIFFS' RESPONSE TO DEFENDANTS' MOTION IN LIMINE TO EXCLUDE THE BUSINESS VALUATION OPINIONS OF THOMAS GILMAN (Assigned to the Honorable Robert C. Broomfield) (Oral Argument Requested)

MICHAEL MAKINGS, Counterclaimant, vs. LEAPSOURCE, INC., et al.,

23 Counterdefendants. 24 25
H:\Leapsource\Pleadings\Resp to Gilman MIL.doc

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MEMORANDUM OF POINTS AND AUTHORITIES INTRODUCTION This is the second time the defendants have tried to prevent the plaintiffs from testifying about the damage done to LeapSource by the defendants' actions. For the second time, the defendants have ignored the rules that actually apply to Mr. Gilman, and have argued at great length about issues that have nothing to do with the admissibility of his opinion testimony. In ruling upon the defendants' previous effort to preclude the plaintiffs from testifying about their damages claims, the Court recognized that the individual plaintiffs (including Tom Gilman) "were not retained or specially employed to provide expert testimony in this

11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 For example, most courts have permitted the owner or officer of a business to testify to the value or projected profits of the business, without the necessity of qualifying the witness as an accountant, appraiser, or similar expert. See, e.g., Lightning Lube, Inc. v. Witco Corp. 4 F.3d 1153 (3d Cir. 1993) (no abuse of discretion in permitting the plaintiff's owner to give lay opinion testimony as to damages, as it was based on his knowledge and participation in the day-to-day affairs of the business). Such opinion testimony is admitted not because of experience, training 2
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case, nor did their duties as employees of LeapSource regularly involve giving expert testimony." Order dated 7 September 2005 at 6 (Docket No. 249). Nevertheless, as the Court recognized, the Federal Rules of Civil Procedure allow persons other than retained experts, including individual parties to a lawsuit, to give opinion testimony, including expert opinion testimony, without being subject to the same rules that apply to retained experts. Similarly, the Federal Rules of Evidence allow parties and certain witnesses to give opinion testimony, including opinion testimony about valuation and financial projections, without being subject to the same standards that apply to experts.

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or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his or her position in the business. The amendment does not purport to change this analysis. Federal Rules of Evidence (FRE) Advisory Committee Notes for the 2000 Amendments to Rule 701 (emphasis added).

5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 long career at Chrysler (before joining the board of directors of LeapSource, Mr. Gilman was 21 22 23 24 25
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Moreover, even under FRE 702, experts are not all held to the same standards, and the rules have always been interpreted to permit "skilled witnesses" to give opinion testimony without regard to their qualifications as experts "in the strictest sense of the word": The rule is broadly phrased. The fields of knowledge which may be drawn upon are not limited merely to the "scientific" and "technical" but extend to all "specialized" knowledge. Similarly, the expert is viewed, not in a narrow sense, but as a person qualified by "knowledge, skill, experience, training or education." Thus within the scope of the rule are not only experts in the strictest sense of the word, e.g., physicians, physicists, and architects, but also the large group sometimes called "skilled" witnesses, such as bankers or landowners testifying to land values. FRE Advisory Committee Note to Rule 702 (emphasis added). Neither Daubert v. Merrill Dow Pharmaceuticals, Inc., 509 U.S. 579 (1993), nor Kumho Tire v. Carmichael, 526 U.S. 137 (1999) purport to change that analysis.1 Tom Gilman is not a retained expert. He is not a professional business appraiser. However, he has extensive business experience, including the experience derived from his

the CFO of Chrysler Financial), and his experience as a shareholder, director, and CFO of LeapSource. Mr. Gilman's attached affidavit describes some of his additional business

See the discussion of FRE 702 in Part IV, below. 3
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experience, including matters involving the valuation of business operations, since his deposition was taken in this case. It was the defendants' burden in their Motion in Limine (hereafter "MIL") to demonstrate that no part of Mr. Gilman's opinions may be admissible for any purpose under any applicable standard.2 They have not and cannot meet that burden, and the MIL should be denied. The plaintiffs believe that the admissibility of Mr. Gilman's opinion testimony is governed by FRE 701. However, whether his opinions are analyzed as lay opinion testimony under FRE 701, or as the opinions of an expert or "skilled witness" under FRE 702, he is

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 In Jonasson v. Lutheran Child and Family Services, 115 F.3d 436, 440 (7th Cir. 1997), the court recognized that a motion in limine: performs a gatekeeping function and permits the trial judge to eliminate from further consideration evidentiary submissions that clearly ought not be presented to the jury because they clearly would be inadmissable for any purpose. The prudent use of the in limine motion sharpens the focus of later trial proceedings and permits the parties to focus their preparation on those matters that will be considered by the jury. Some evidentiary submissions, however, cannot be evaluated accurately or sufficiently by the trial judge in such a procedural environment. In these instances, it is necessary to defer ruling until during trial, when the trial judge can better estimate its impact on the jury. (Emphasis added.) Following Jonasson, the court in PR Contractors, Inc. v. U.S., 69 Fed.Cl. 468, 471-72 (2006) denied a motion in limine to preclude the opinion testimony of a nonparty consultant: To the extent that Mr. Heath's testimony attempts to offer unsupported opinion, or lacks backup information and critical detail, those matters are best raised at trial when the Court can rule on appropriate objections in context. Defendant has not proffered sufficient cause at this juncture for the Court to determine that Mr. Heath's testimony would be so unreliable or speculative as to be inadmissible in its entirety. As such, Plaintiff may put on Mr. Heath's testimony, and Defendant may object as necessary during the course of the trial. 4
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qualified to testify about the opinions provided to the defendants in his written Summary of Opinions (Exhibit 3 to the MIL) and at his deposition.

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II.

BACKGROUND A. Tom Gilman Was A Part Owner, Director, and Officer Of LeapSource

Tom Gilman joined the LeapSource Board of Directors in April 2000. See Ex. 1 to Defendants' Motion in Limine ("MIL") (including excerpts from the deposition of Tom Gilman). When he joined the LeapSource board, Mr. Gilman was the Chief Financial Officer of Chrysler Financial Company, L.L.C., a multi-billion dollar automotive financial services business. Mr. Gilman spent 27 years with Chrysler after obtaining his bachelors degree in finance from Villanova University in 1973. Id. Mr. Gilman began his finance career at Chrysler in manufacturing operations at the divisional and plant levels, including 3 years at

11 12 13 14 15 16 17 18 19 20 member of the Daimler-Benz/Chrysler Corporation Merger Integration Team and appointed 21 22 23 24 25 5
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Chrysler de Mexico. Mr. Gilman's experiences at Chrysler included participation in the Chrysler Loan Guarantee efforts, the acquisition by Chrysler of American Motors (Jeep), and the creation of the 1990 Billion Dollar Cost Reduction Program. From 1990 to 1994, Mr. Gilman was responsible for Chrysler Corporation's credit operations, extending financial assistance to automotive retail dealers and distributors worldwide. In late 1994 to mid-1995, Mr. Gilman was Director of Finance for Chrysler's Asia-Pacific region. In 1995, Mr. Gilman led the finance organization at Chrysler Financial Company, L.L.C. where he became chief financial officer of the captive finance company. In 1998, Mr. Gilman was selected as a

as a member of the Financial Services Committee of DaimlerChrysler Services, AG, positions he held until June 2000. Attached Affidavit of Thomas F. Gilman, at ¶ 4 ("Gilman Affidavit").

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In addition to his considerable business and financial experience at Chrysler, as Mr. Gilman testified at his deposition: [I]n my career, I have been a board member of several boards. I have been the chairman of an audit committee. I have taken a company public. I have had many dealings with the SEC. I have dealt with underwriters, underwriters' attorneys. I have dealt with -- I am considered a financial expert by the New York Stock Exchange and the NASDAQ; therefore, I am qualified to be the chairman of an audit committee ..." Deposition of Thomas F. Gilman ("Gilman Dep."), August 1, 2005, at 66:20-67:2. After his retirement from Chrysler Mr. Gilman was hired as a consultant by LeapSource to consult with and assist the company in preparing for either an initial public

10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 Even after he resigned as CFO on February 27, 2001 Bruce Rauner of GTCR recommended that Mr. Gilman continue in his efforts to find a buyer for the company: Mr. Rauner moved that Mr. Makings be asked to discuss with Ms. Kirk and Mr. Gilman their continuing to market the Company to potential investors and buyers in their capacities as directors of the Company. Deposition Ex. 7 (Bates No. LS-91-0290). 6
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offering (IPO) or to obtain additional mezzanine financing. Gilman Affidavit at ¶ 5. When LeapSource CFO Joe Biehl left the company in the fall of 2000, Mr. Gilman was asked by Christine Kirk and GTCR to take over the CFO position. While he declined the offer to become the permanent CFO, he did agree to become the interim CFO until a replacement for Joe Biehl could be found. Id. Mr. Gilman remained the CFO until he resigned that position on February 27, 2001, remaining a member of the LeapSource board of directors.3 Mr. Gilman was also a part owner (shareholder) of LeapSource, having purchased 6,000 shares of LeapSource stock in January 2001. Ex. 1 to MIL.

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B.

Tom Gilman Was Personally Knowledgeable Concerning LeapSource and ICG Businesses, Including Their Financial Records

Beginning in July 2000, Mr. Gilman became deeply immersed in all facets of the operations of LeapSource, including its ICG division. One of his first major tasks for LeapSource was to assist in the preparation of a 5-year plan, a prospective financial report to

5 6 7 8 9 10 11 12 13 14 in his role of locating potential buyers or mezzanine investors for the company. This 15 16 17 18 19 20 21 22 23 24 Gilman became personally familiar with every aspect of the LeapSource business so that he 25 7
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be presented to underwriters interested in participating in a LeapSource IPO or mezzanine financing. Mr. Gilman worked closely with the then CFO, Joe Biehl, with CEO Christine Kirk, and with other managers of the company, and became familiar with LeapSource's operations, sales, revenues, and expenses. Gilman Affidavit at ¶ 5. When Joe Biehl left the company in approximately October 2000, Tom Gilman was asked by Christine Kirk and GTCR to become the CFO of LeapSource. Mr. Gilman agreed to act as the interim CFO until a permanent replacement could be found. While Tina Rhodes (the Controller) handled the daily tracking of revenue and expenses, Mr. Gilman continued

required that he be knowledgeable concerning the company's financial records and circumstances in order to portray that information to a prospective underwriter, investor, or acquirer. Id. at ¶ 6. At the same time, Mr. Gilman continued to work with prospective underwriters. In order for the underwriters to properly evaluate and assist LeapSource in preparing for a potential IPO or to obtain mezzanine financing, they needed up-to-date financial, sales, and operational information on LeapSource, and Mr. Gilman was one of the conduits of that information. In order to communicate effectively with the potential underwriters, Mr.

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could intelligently address any inquiry about his company. Id. at ¶¶ 5-8. Mr. Gilman was also involved with GTCR representatives in evaluating the cash requirements of the business, in a manner similar to that of a permanent CFO. As the former CFO of Chrysler Financial, Mr. Gilman is familiar with the basic duties and responsibilities of a Chief Financial Officer, and during this time frame those basic duties and responsibilities would have been fundamentally the same, whether for a small company like LeapSource or for a large company like Chrysler Financial. Id. at ¶ 8. C. Tom Gilman's Experience Demonstrates His Qualifications To Give Informed Opinion Testimony About Companies Concerning Which He Has Personal Knowledge and Experience

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Since his deposition was taken on December 5, 2005, Mr. Gilman was hired by Cerberus Capital Management (a multi-billion dollar private investment firm) to assist its management team in the acquisition of a majority (51%) stake in General Motors Acceptance Corporation ("GMAC"). This was a $14 billion dollar transaction. Mr.

Gilman's role in this transaction was to assist in the valuation of GMAC's automotive financing business, including adjustments to the book value of the company, and also to formulate operating agreements between the "new" GMAC and General Motors. Mr.

Gilman has also been hired by Cerberus to assist with the valuation of four additional companies, and to assess other debt transactions planned by Cerberus. Id. at ¶¶ 1-2.

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Several other companies have also hired Mr. Gilman to evaluate their assessment, analyses and valuations of several automotive related businesses, which include franchises for Cadillac, Hummer, Chrysler-Jeep, Dodge, and Harley-Davidson. Id. at ¶ 3. Mr. Gilman's ability to provide this kind of assistance to those clients is based upon

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the same wealth of experience and knowledge that he had when he joined the LeapSource board in 2000, that he employed on behalf of LeapSource as a consultant and CFO, and in preparing the opinions described in his Summary of Opinions, Exhibit 3 to the MIL. III. TOM GILMAN IS QUALIFIED TO GIVE OPINION TESTIMONY CONCERNING THE VALUE OF LEAPSOURCE AND OF ICG, AND HOW IT WAS ADVERSELY AFFECTED BY THE DEFENDANTS' ACTIONS A. Under Rule 701(a) Tom Gilman May Offer Lay Opinion Testimony As To The Value Of LeapSource And Its ICG Division

Rule 701(a) requires that lay opinion testimony be "rationally based on the perception of the witness." "This qualification simply reflects a recognition of the limitation embodied in FRE 602, that a witness must have `personal knowledge of the matter' in order to testify to it." Teen-Ed, Inc. v. Kimball Int'l, Inc., 620 F.2d 399, 403 (3d Cir. 1980). "The essential difference" between a witness testifying under Rule 701 and an expert witness testifying under Rule 702 "is that a qualified expert may answer hypothetical questions." Id. at 404. Because Mr. Gilman proposes to give lay opinion testimony regarding the valuation of LeapSource, Inc. and its ICG division, based upon his own experience with those

16 17 18 19 20 21 22 23 24 25 In Lightning Lube, Inc., the defendants sought exclusion of a witness' "testimony with respect to lost profits . . . because it bore no relation to the operating history of Lightning Lube's franchisees and thus was speculative." 4 F.3d at 1175. The Third Circuit rejected this argument: "we have determined that at least some of [the witness'] assumptions were valid. His testimony thus was helpful to the jury." Id. at 1176.
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companies, FRE 701 provides the proper framework for evaluating the admissibility of his opinion. Lightning Lube, Inc. v. Witco Corp. 4 F.3d 1153 (3d Cir. 1993).4 It is well settled that, under FRE 701,5 a business owner or officer may offer his opinion regarding his company's value:

Federal Rule of Evidence 701 states: 9
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"[M]ost courts have permitted the owner or officer of a business to testify to the value or projected profits of the business, without the necessity of qualifying the witness as an accountant, appraiser or similar expert. See, e.g., Lightning Lube, Inc. v. Witco Corp.[,] 4 F.3d 1153 (3d Cir. 1993) (no abuse of discretion in permitting the plaintiff's owner to give lay opinion testimony as to damages, as it was based on his knowledge and participation in the day-to-day affairs of the business). Such opinion testimony is admitted not because of experience, training or specialized knowledge within the realm of an expert, but because of the particularized knowledge that the witness has by virtue of his or her position in the business. The amendment does not purport to change this analysis." Advisory Committee Notes for the 2000 Amendments to Rule 701 (emphasis added). The cases are uniform in allowing such witnesses to testify about business or property

10 11 12 13 14 15 16 17 18 19 affairs of the corporation and his knowledge of relevant value'"). 20 21 22 23 24 25 If the witness is not testifying as an expert, the witness' testimony in the form of opinions or inferences is limited to those opinions or inferences which are (a) rationally based on the perception of the witness, (b) helpful to a clear understanding of the witness' testimony or the determination of a fact in issue, and (c) not based on scientific, technical, or other specialized knowledge within the scope of Rule 702. 10
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values, financial projections, and calculations of lost profits, without having to be qualified as expert witnesses under FRE 702. See, e.g.,Robinson v. Watts Detective Agency, Inc., 685 F.2d 729, 739 (1st Cir. 1982) (president and stockholder permitted to give his opinion about the value of the company, which he calculated by a "gross sales method"); Glosband v. Watts Detective Agency, Inc., 21 B.R. 963 (D. Mass. 1981) (admitting the valuation opinion of the president and majority shareholder of a bankrupt company); Gregg v. U.S. Industries, Inc., 887 F.2d 1462 (11th Cir. 1989) ("an officer of a corporation may testify to the value of the property `if the officer is qualified by virtue of his experience, his management of the

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In fact, it has long been settled throughout the country that "every property owner is competent to testify as to the value of his own property." Sacramento Suburban Fruit Lands Co. v. Soderman, 36 F.2d 934 (9th Cir. 1929). As the Advisory Committee Notes to FRE 701 make clear, that is still the law, and a shareholder (part owner) and officer of a corporation is an "owner" for the purposes of that rule. Prudential asserts that a shareholder or officer of a corporation is not an "owner" for the purposes of testifying as to value. However, Mr. Shapiro was a general partner in HRP in his own right and he was an officer, director and shareholder of Nametco, one of the general partners in HRP. The Arizona Supreme Court has held that a non-expert officer, director, and shareholder of a corporation may testify as to the valuation of corporate property. In Atkinson v. Marquart, 112 Ariz. 304, 307, 541 P.2d 556, 559 (1975), the court stated: The sole evidence presented on the valuation of the corporation's loss of good will was by appellee Marquart. As an officer, director, and shareholder of the corporation Marquart could be considered an owner. It is well established that an owner may estimate the value of his real or personal property whether he qualified as an expert or not. Acheson v. Shafter, 107 Ariz. 576, 490 P.2d 832 (1971). The fact that an owner may not be an expert goes to the weight of the testimony and not the competency. Jowdy v. Guerin, 10 Ariz. App. 205, 457 P.2d 745 (1969). United California Bank v. Prudential Ins. Co. of America, 140 Ariz. 238, 681 P.2d 390, 455 (App. 1983) (emphasis added). The court in that case also rejected the argument "that rules 602 and 701, Rules of Evidence, have overruled Atkinson v. Marquart." Id. at 455-56.6

"The Arizona cases uniformly confirm that the valuation process is not solely the province of expert witnesses. An owner of property has, by definition, knowledge of the components of value that are useful in ascertaining value, and an owner, no less than an "expert," can base his opinion of value on that knowledge. The adoption of the Rules of Evidence has not changed this rule. See 1 M. Udall & J. Livermore, Arizona Practice: Law of Evidence § 21 11
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See also Droeger v. Welsh Sporting Goods Corp., 541 F.2d 790, 793 (9th Cir. 1976) ("There was likewise no error in permitting the plaintiff to testify about his opinion of the value of his idea."); Mississippi Chem Corp. v. Dresser-Rand Co., 287 F.3d 359, 373-74 (5th Cir. 2002) (director of risk management and property taxation allowed to testify regarding lost profits); Securitron Magnalock Corp. v. Schnabolk, 65 F.3d 256, 265 (2d Cir. 1995) ("[A] president of a company, such as Cook, has `personal knowledge of his business ... sufficient to make ... [him] eligible under Rule 701 to testify as to how lost profits could be calculated.'") (citation omitted); In re Merritt Logan, Inc., 901 F.2d 349, 359-60 (3d Cir.

9 10 11 12 13 14 15 16 17 18 Darkprint Imaging, Inc., 240 F. Supp. 2d 465, 481 (M.D.N.C. 2002) (Providing guidance for 19 20 21 22 23 24 25 at 25-27 (2d ed. 1982)." Id. at 456 (emphasis added). As the Court knows, the Arizona Rules of Evidence cited by the Court in the Prudential case, Rules 602 and 701, were modeled on the Federal Rules of Evidence. 12
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1990) (principle shareholder eligible to testify regarding lost profits); State Office Sys, Inc.. v. Olivetti Corp. of America, 762 F.2d 843, 845-46 (10th Cir. 1985) (president/treasurer was qualified to testify regarding lost profits); DIJO, Inc. v. Hilton Hotels Corp., 351 F.3d 679, 687 (5th Cir. 2003) (vice president could testify regarding lost profits); Micro Data Base Sys., Inc. v. Dharma Sys., Inc., 148 F.3d 649, 657-58 (7th Cir. 1998) (damages award upheld though based entirely on oral testimony of company's president); Diesel Mach., Inc. v. B.R. Lee Indus., Inc., 328 F. Supp. 2d 1029, 1039-40 (D.S.D. 2003) (President "clearly was qualified to opine on [company's] lost profits."); Static Control Components, Inc. v.

later proceedings, the court states that `business owners and officers are allowed to make damages calculations if they have sufficient personal knowledge of the facts.") (citation omitted); Duluth Lighthouse for the Blind v. C.G. Bretting Mfg. Co., Inc., 199 F.R.D. 320,

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322-26 (D. Minn. 2000) (former chief executive officer allowed to offer lay witness testimony regarding damages resulting from purchase of defective equipment). B. Mr. Gilman's Use Of The "Market Multiple" Method Of Arriving At His Opinions Does Not Bring His Testimony Within The Scope Of Rule 702

Mr. Gilman used the "market multiple" method to determine the value of LeapSource 5 6 7 8 9 10 11 12 13 14 at p. 3. To this product he applied a discount rate of fifty percent. Id. LeapSource and 15 16 17 18 19 20 21 Gilman Dep., 8/1/05, at 107. See also Summary of Opinion, Ex, 3 to MIL at p. 2, and 22 23 24 25 Exhibits 1-4, and 6 attached to this Response. In his Summary of Opinion, Mr. Gilman offers the following additional insight: This valuation methodology was used each month to report to the 13
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and its ICG division. Summary of Opinion, Ex, 3 to MIL at p. 2. At the core of the market multiple technique is a straightforward calculation. Mr. Gilman started with the company's total revenues ­ a figure he drew from the December 2000 LeapPak (LeapSource, Inc.'s monthly compilation of financial and budgetary documents). Id. at p. 1. He then multiplied this number by a "market multiple". This multiple "is calculated by taking the market capitalization at a point in time, and dividing revenue into it." Id. at p. 2. In this instance, he used a market multiple of seven, a number he arrived at "based on the average of the general outsourcing service competitors, the industry and the sector." Id.

GTCR established the practice of using a 50% discount rate before Mr. Gilman's arrival at the company: Q. How -- when you factored these considerations in, how did you determine 50 percent as opposed to, say, 75 percent? A. 50 percent was used in all of the valuations that we had calculated at the time I was at LeapSource to determine with GTCR the value of the stock option grants.

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majority shareholders (GTCR) and the minority shareholders (the employees) the fair market value of the company. This valuation methodology was reviewed by GTCR and established the basis for approval of the option grants by the LeapSource Board of Directors. Id. (emphasis added). That Mr. Gilman used a conventional method is further confirmed by the fact that, during the relevant years of 2000 and 2001, similar companies generally used market multiples to determine value. Id. See also Ex. 5 attached to this Response. The Defendants' argument that Mr. Gilman's methodology is so complex as to render his opinion inadmissible under Rule 701 is unfounded. A number of courts have determined that reasoning of comparable sophistication may serve as the basis for lay opinion testimony.

10 11 12 13 14 15 16 17 18 19 helped prepare); Ganz v. Lyons P'ship, L.P., 961 F. Supp. 981, 991-92 (N.D. Tex. 1997) 20 21 22 23 24 25 14
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For example, in Allied Sys., Ltd. v. Teamsters Auto. Transp. Chauffeurs, Demonstrators and Helpers, Local 604, 304 F.3d 785, 792 (8th Cir. 2002), the union argued that its opponents' vice president of internal audit had "used accounting principles and methods to quantify damages, and therefore impermissibly used specialized knowledge, which can only be used by expert witnesses." Nevertheless, the Eighth Circuit upheld the admission of the witness' opinion testimony. Id. See also State Office Sys, Inc., 762 F.2d at 845-46 (10th Cir. 1985) (president/treasurer allowed to offer lay witness testimony based upon a summary of lost profits, including "interpretations of past data and projections of future events" that he

(vice president of finance and administration allowed to testify regarding elaborate lost profits calculations). The unmistakable conclusion to be drawn from these decisions is that Mr. Gilman's valuation opinions are admissible under Rule 701, and are not required to meet the standard

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for expert opinions "within the scope of Rule 702." FRE 701(c). The Defendant's argument that Mr. Gilman's method is not fundamentally sound is belied by the evidence that GTCR had itself previously approved of such methods to determine the company's value, and used such methods in its own business calculations. Exhibits 1-4, 6. Mr. Gilman's valuation opinions are admissible because they are his own opinions, based upon his own experience as a consultant, director, CFO, and shareholder of LeapSource, and because they will be helpful to the jury, which is perfectly capable of evaluating such evidence and deciding for itself how much weight to give to Mr. Gilman's

9 10 11 12 13 14 15 16 17 18 19 929-30. "Instead of limiting Mr. Livingston's testimony to his experience as a business 20 21 22 23 24 25 15
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opinions in light of all of the other evidence relating to these issues. C. The LifeWise Decision Supports Admissibility Of Mr. Gilman's Opinions

Defendants' assertion that Mr. Gilman cannot offer lay witness testimony under Rule 701 is based in large part upon Lifewise Master Funding v. Telebank, 374 F.3d 917 (10th Cir. 2004). However, that case, when correctly understood, lends support to the conclusion that Mr. Gilman's opinion testimony is admissible. In that case, the Tenth Circuit ruled that Lifewise Master Funding's president's estimate of lost profits was not admissible under Rule 701 because it was based upon a complex and highly speculative model about which he had no personal knowledge. Id. at

person and president of the company, ..., LifeWise had him `enter [] into the realm of rolling averages, S-curves, and compound growth rates that appear to be an amalgam of logic, hope, and economic jargon.'" Id. at 930 (emphasis added). (None of Mr. Gilman's opinions are based upon such factors.)

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Significantly, the court observed that the officer "could have given a straightforward opinion as to lost profits using conventional methods based on LifeWise's actual operating history. Indeed, the court essentially invited LifeWise to have him so testify." Id. (emphasis added). This is precisely the type of opinion that Mr. Gilman proposes to offer, using a straightforward valuation methodology that had been used by LeapSource with GTCR's knowledge and approval to value the stock of the company. D. Mr. Gilman Will Testify Based Upon His Own Extensive Personal Knowledge And Experience, Including His Personal Experience With The Specific Businesses And Issues That Are The Subject Of His Opinions

Mr. Gilman's extensive business experience, his several roles with respect to 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 LeapSource, and his knowledge and understanding of the company's business and financial statements, all qualify him to give opinion testimony that is rationally based upon his own perceptions and helpful to the trier of fact. No more than that is required to meet the requirements of FRE 701. Mr. Gilman's background in business finance is extensive. Although he does not claim to be a professional appraiser, while at Chrysler Mr. Gilman was involved in the valuation of several companies in connection with mergers and acquisitions and divestitures: "Q. I would like you to look at the first paragraph of your report, and the third sentence reads: During my career, I was involved with all aspects of finance within Chrysler and DaimlerChrysler, including mergers, acquisitions, divestitures which required valuation analyses of various companies. Did I read that accurately? A. Yes. Q. I would like to understand the valuation analyses that were conducted of these various companies. Can you identify any of the various companies that you are referring to in this paragraph? 16
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A. Sure. Most notably I guess was the acquisition of American Motors Corporation, which is Jeep, which took place in 1987 or '88; the acquisition of Gulf Stream Aerospace; the divestiture of Myriad Industries; the divestiture of Gulf Stream Aerospace. And then in one of the positions I had at DaimlerChrysler I had the responsibility for workouts with different dealer groups, and as part of that, we did some divestitures." Gilman Dep., 12/5/05, at 22:6-25. With regard to the acquisition of American Motors (Jeep) and the divestiture of Gulf Stream Aerospace, Mr. Gilman also testified: "Q. How -- the acquisition of American Motors, what was the consideration paid in that transaction? A. As I recall, 1.2 billion. Q. How about Jeep? A. Same. Q. Gulf Stream? A. They are not cumulative. Q. Okay. A. Okay. Q. Gulf Stream? A. 650 million." Gilman Dep., 8/1/05, 114:20-115:5. These were not small transactions. Mr. Gilman also testified about his prior business experience and its relevance to his ability to give the opinion testimony that is the subject of this Motion: Q. BY MR. FARIS: I will give you an example. Do you consider yourself an expert to testify in court regarding market multipliers? A. Yes. 17
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Q. On what do you base your belief that you are an expert in that? A. I think I have done enough acquisition and merger information to have the experience to do that. I have also taken a company public. I have worked with Wall Street for many, many years. I have linked up private equity firms with other companies to -- to provide a source for capital. I have done many acquisitions. I have bought and sold many businesses. Gilman Dep. 8/1/05 at 113:20-114:7. Mr. Gilman's opinions are his own opinions, and are supported by evidence in documents that he personally selected, or evidence that he discovered through his own research and incorporated into a document that he created: Q. Did your lawyers give you these exhibits in order to review for your summary of opinion? A. If you look -- do you want to go exhibit by exhibit? Q. If you can, sir. I just want to know where the source was. Is it your lawyers who gave it to you is the question. A. They were found in documents that were retained at my lawyers' offices. Q. You personally were going through documents or did an assistant at Beus Gilbert give you the exhibits to look at? A. No, I personally looked through the documents. Let me clarify that a little bit. In Exhibit A, I found those documents. In Exhibit B, I created that document. In Exhibit C, I found that document. Gilman Dep., 12/5/05 at 105:8-23. Mr. Gilman also testified: Q. Is it possible that somebody just sent you the signature page and you executed it and then it was produced in this litigation? A. No. I reviewed every page on this and I reviewed every number on this and I reviewed every single assumption that was in it, and I went back and I recalculated all the numbers on the 18
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exhibits and I did a full study of it, and it was in good shape. Gilman Dep., 12/5/05 at 100:9-16. The fact that Mr. Gilman's methodology was one that he learned from others is no basis for objecting to its admissibility. In Robinson v. Watts Detective Agency, Inc., 685 F.2d 729, 739 (1st Cir. 1982), the president and stockholder was permitted to give his opinion about the value of the company, which he calculated by a "gross sales method": Appellants claim that Sullivan's opinion was not based on his personal knowledge as the owner of the company but solely on the opinions of others. This claim derives from Sullivan's testimony that he became aware of the gross sales valuation formula through talking with other knowledgeable businessmen several years before and again after Recklitis' offer. He stated that he also talked to "other financial people" in Boston who confirmed that the gross sales method was an accurate measure of the value of a service company. We note that this is a common and reliable way of obtaining knowledge. Most knowledge has its roots in hearsay. Appellants are mistaken, moreover, in their assertion that his opinion came solely from the opinions of others. Sullivan's testimony was that he relied on this valuation formula in part, and there was evidence from which the district court properly could have found Sullivan's substantial personal familiarity with the property such that his opinion would be admissible. He had been president and majority or near-majority stockholder in the business since its beginnings in the late 1950's and had been in charge of the finances of the company, securing loans from banks and other sources. He watched his company expand to a million dollars worth of business in the year prior to the takeover due to loyal customers who had sizeable accounts and paid their bills regularly. These facts, combined with other evidence indicating Sullivan's intimate familiarity with his business, support the district court's determination that his opinion as to value was admissible. The Court should also note that two of GTCR's principals (who were also members of the LeapSource board of directors with Mr. Gilman) testified that Mr. Gilman was "pretty 19
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financially sophisticate[ed]," Joe Nolan Dep., at 106:18-19, and that Mr. Gilman was "very professional and very capable." Dan Yih Dep., at 182:12-15. E. Mr. Gilman's Methodology Is Perfectly Appropriate And Widely Used, Including By GTCR And Others Involved With LeapSource and ICG

Mr. Gilman's decision to use a market multiple valuation method was in keeping with 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25
7

the established practices of LeapSource, GTCR, and others. Summary of Opinion, Ex. 3 to MIL, at p. 2; Exhibits 1-4, 6.7 Tina Rhodes testified that she spoke with LeapSource's auditors from KPMG regarding this valuation methodology. GTCR was aware of this as well. She testified: Q. Was that -- do you recall being part of any discussion where the value of that stock was determined? A. Yes. We had to track the -- what would be deemed as the fair market value of the stock for stock option purposes. That's one of the requirements. And so -- and you do that by basically - in a new company you basically do that by determining what type of assets they have, what type of cash flow they have, what type of market rate the similar companies are at that are in that marketplace. And it just has to be kind of a logical flow, if you will, of kind of the stock price. And that's how it was determined it was, you know, I ran it by KPMG, the auditors at that point in time, to determine its reasonableness. And that's basically how it was determined. Q. Did you discuss that amount with anybody at GTCR?

Although defendants try to suggest that Mr. Gilman himself did not believe it was the best way to value a company, because it did not focus on other "fundamentals," Mr. Gilman also testified that it was, in fact, the way businesses were valued in the market at the relevant times. The issue is not whether, in retrospect, business values were "inflated" in 2000 and 2001, whether because of "irrational exuberance" or for any other reason, but what the likely values actually were at the relevant times. 20
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A. After the amount was determined. Can you ask your question again? Q. Before or after it was determined, did you relate that information, this valuation number to anybody at GTCR? A. Yeah. After it was determined, they were made aware. Because again, the stock option grants that were made, that type of thing, they would have been aware based on correspondence, et cetera, of what the, you know, fair value was or what we were deeming the value to be. Rhodes Dep., at 105:4-106:8 (emphasis added). In considering the defendants' belated objection to the use of a market multiple to determine the value of a company like LeapSource, the Court should be aware that the record is filled with evidence of the use of market multiples by others ­ including GTCR ­ to determine or estimate the value of LeapSource, of ICG, and of other businesses, as well:

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· Attached to this Response as Ex. 1 (Bates Nos. LS-TG1-1155-1163) is a note from Tina Rhodes to Tom Gilman (with supporting documents and calculations), which details the methodology approved by GTCR for the valuation of LeapSource stock. This methodology involves the use of a

multiple, which is then multiplied by revenue, and then reduced by a discount factor (the very same methodology which Mr. Gilman has used in his valuations of LeapSource and ICG in this case, and which GTCR now calls into question). Ms. Rhodes writes: "Tom This is the value justification @ $4.- which is what GTCR deemed the fair value to be at June 1." LS-TG1-1155 (emphasis added). Ms. Rhodes explained her use of the "multiple" and "discount" as follows:

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"A - Multiple used was based on the average of the general outsourcing service competitors, the industry and the sector. Additionally the price/sales of exult was also heavily factored in the analysis as they are a comprehensive outsourcing provider focusing on mid to large markets which is similar to LSI business model. B - Discount applied to the multiple is based on (1) LeapSource being a privately held company which is 70% owned by one venture capital investor, (2) the limited operating history, (3) the uncertain prospects for growth, and (4) the limited signed outsourcing contracts (1 as of June 1)." LS-TG1-1157 (emphasis added). · Attached to this Response as Ex. 2 (Bates Nos. GTCR 001570-1572) is a note from Tina Rhodes to Colin Roche (GTCR analyst), which provides the "valuation justification" for the "fair value per share" of LeapSource stock between September 27, 1999 and May 22, 2000. · Attached to this Response as Ex. 3 (GTCR 001473-1478) is a fax from Christine Kirk to Joe Nolan of GTCR, which provides a draft of a proposed

15 16 17 18 19 20 21 22 23 24 states: 25 22
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term sheet regarding the initial acquisition of ICG by LeapSource (in early 2000), and also a LeapSource file memo that documents the proposed ICG acquisition terms. The latter document also indicates that ICG was valued using a multiple. · Attached to this Response as Ex. 4 is Deposition Exhibit 199, which indicates that in February 2001, Sean Cunningham of GTCR used a range of multiples of `free cash" to estimate the value of the ICG division of LeapSource. See the note from Sean Cunningham to Dan Yih, Bates No. GTCR 011535, which

1 2 3 4 5 6 7 8 9 10 11 12 At 5x Free Cash 6x Free Cash 7x 8x " "

Value 3,987K 4,785K 5,582K 6,380K

· Attached to this Response as Ex. 5 are two pages (Bates Nos. GTCR 0057395740) from the Salomon Smith Barney Offering pertaining to the IPO of Exult. These pages are from the "Valuation/Trading" section of the document and indicate that the $1.1 Billion to $1.3 Billion value of Exult was based solely on a revenue multiplier. · Attached to this Response as Ex. 6 is a Unanimous Written Consent of the Directors of LeapSource, Inc., dated January 1, 2001 (Bates Nos. LS-13-1235-

13 14 15 16 17 18 19 20 21 22 LeapSource common stock, (2) the acquisition of the assets of ICG, and (3) an estimated 23 value of ICG assets in February 2001. 24 25 Mr. Gilman used a market multiple "based upon the average of the general 23
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1236), by which the LeapSource Board of Directors (including GTCR principals Bruce Rauner and Joseph Nolan) determined the "fair value of each share of the Corporation's [LeapSource, Inc.] Common Stock." The valuation of each share of LeapSource common stock was calculated using a "multiple," as was also done with prior Unanimous Written Consents by the board. Thus, the jury will see other evidence showing that, between September 1999 and March 2001 GTCR and GTCR members of the LeapSource board were content to use a multiple methodology with regard to (1) the analysis of the "fair value" of each share of

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outsourcing service competitors, the industry and the sector." Summary of Opinion, Ex. 3 to MIL, at p. 3. With regard to the selection of the companies used in the multiple analysis, Mr. Gilman testified: Q. Did you select these companies for any reason other than these were the companies used by LeapSource and GTCR? A. Yes. Q. And what reason are those? A. These were closest comparable companies to the type of business and business model that LeapSource was engaged in. Q. Are there any other reasons why you selected these particular companies that are set forth in Exhibit B? A. Not that I can recall. Q. What type of investigation, if any, did you conduct to determine that these companies are most appropriate to your valuation? A. Well, I wanted to make sure that they were involved in the same type of activities and had products and services that were associated with -- or that were comparable to what LeapSource was providing, and so that each one of these in some way is offering those types of products and services. In the particular case of Exult, their business model was very similar to LeapSource, and so I thought that was a -- more of a pure comp. Q. What did you do, in particular, to determine that these were the same types of companies in similar types of businesses? A. I went onto their websites and looked at their public and marketing materials. Q. Did you do anything else? A. Just a lot of reading. Q. What type of reading? A. Reading about their products and services, their business model, you know, looked at their customer base, looked at their 24
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marketing materials, compared those to LeapSource's marketing materials and products and services. Deposition of Tom Gilman 12/5/05 at 43:12-45:11. In his analysis, Mr. Gilman indicated that a company named Exult played an important role in his selection of a market multiple. He explained the emphasis placed on

5 6 7 8 9 10 Summary of Opinion, Ex. 3 to MIL, at p. 3 (emphasis added). Although GTCR once 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 approved of this practice, the defendants now argue that comparing LeapSource to Exult is an "apples to oranges" comparison. As Mr. Gilman's deposition testimony illustrates, he had good reasons for believing otherwise: I felt that [Exult] was a pure ­ a more of a pure comp because its entire business model was very comparable to LeapSource. They were owned by a singe private equity company. They had been ­ had a negative cash burn. Their revenues were growing. They had landed a large contract with BPO ­ BP Amoco, and LeapSource was very close to consummating the Cargill deal. I felt that they had some customers at Exult who were not very remarkable, and they had some ­ and they had one large one that was, and if you look at their pattern through 2000, both in cash flow and revenue, it was very similar to that of LeapSource, and subsequently they went out public in the middle of 2000 with a successful public offering headed up by Salomon Smith Barney. We were at the same time talking to Salomon Smith Barney, and, you know, subsequently they went on to lose money for the next two years. They had a negative burn and eventually wound up selling the company to Hewitt & Associates for $600 million. That equity company made about $500 million on that transaction, and I felt that that could have been the life cycle of 25
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Exult as follows: [T]he price to sales ratio for Exult was weighted more heavily in the analysis, as it was a comprehensive outsourcing service provider who focused on mid to large markets, a business model very similar to LeapSource's business model. (Exult's ratio was weighted two times greater than the other comparables ­ the practice agreed upon between GTCR and LeapSource in 2000.)

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LeapSource, and that's why I classified it as a pure comp. Gilman Dep., 12/5/05, at 51:1-23 (emphasis added). Also: Q. What is your basis for making that particular adjustment to weight Exult two times more heavily? A. I think I just mentioned in my testimony a few seconds ago of why I felt Exult was a pure comp. Exult had four clients. LeapSource had four clients. Three of those clients were unremarkable. One of them was large, and the large one was new. Their revenue stream was very consistent with what LeapSource was doing. They were burning cash. They had a negative cash flow to the tune of, as I recall, almost $20 million in the first year that they were -- that they were in operation. They were owned by General Atlantic Partners, I believe it was, a single private equity firm, as LeapSource was owned by a single private equity firm, GTCR. I believe that General Atlantic Partners worked well with Salomon Brothers to get Exult public. We were in the process of doing that, dealing with exactly the same outsourcing people who took Exult public. As I mentioned, Exult then began to -- after they did go public, they did lose money for the subsequent two years. I was expecting that LeapSource would probably turn cash positive sometime in 2001, possibly 2002 at the latest. They were adding new clients as a result of being a public company. LeapSource could have been adding clients had it been public or had it not stopped its operations, and eventually, you know, Exult went on to be sold for $600 million, and I thought that that could be the -- you know, the life cycle of LeapSource as well, so there were many things there. Gilman Dep., 12/5/05 at 53:11-54:14. Sound reasoning and historical precedent also underlay Mr. Gilman's discount figure. He chose to use a fifty percent (50%) discount figure that "took into account that LeapSource was a privately held company which was seventy (70) percent owned by one venture capital investor, that LeapSource had a limited operating history with uncertain prospects for growth

24 25 and had limited signed outsourcing contracts." Summary of Opinion, Ex. 3 to MIL, at p. 3. 26
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During Mr. Gilman's tenure with LeapSource, the use of a fifty percent discount rate by LeapSource, Inc. and GTCR was routine. The practice of applying a fifty percent discount, which actually pre-dated Mr. Gilman's arrival, was agreed-upon by LeapSource, Inc. and GTCR. See Exhibits 1-4, 6. That Mr. Gilman performed the calculations discussed above and upon which he bases his opinion is not disputed. His method incorporated data compiled by others,

including Tina Rhodes, but this is no bar to Mr. Gilman's testimony. Rule 701 does not require that Mr. Gilman perform every calculation, nor does it require that he rely solely on

9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 of others whom he had heard say that service businesses could be valued at the level of their 25 27
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data that he has personally gathered. In Lightning Lube, Inc., the Third Circuit expressly rejected the argument that opinion testimony is not admissible under Rule 701 when it draws upon the work of others: [G]iven Venuto's knowledge and participation in the day-to-day affairs of his business, his partial reliance on the report, even if prepared by an outsider, does not render his testimony beyond the scope of Rule 701. As the district court correctly noted, "[i]t is logical that in preparing a damages report the author may incorporate documents that were prepared by others, while still possessing the requisite personal knowledge or foundation to render his lay opinion admissible under Fed. R. Evid. 701. 4 F.3d at 1175. See State Office Sys., Inc., 762 F.2d at 845-46 (president/treasurer allowed to offer lay opinion based upon a summary of lost profits that he received assistance in preparing). In Glosband v. Watts Detective Agency, Inc., 21 B.R. 963 (D. Mass. 1981), the defendants insisted that the valuation opinion of the president and majority shareholder of a bankrupt company should have been excluded because it "was based solely on the opinions

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gross sales."

Id. at 980.

The court rejected this argument: "Sullivan's testimony

demonstrated substantial familiarity with the operations of the business. While he did testify that he was basing his opinion in part upon the statements of others . . . his personal familiarity with the business clearly was a substantial element." Id. at 981. "Sullivan's testimony revealed him to have adequate knowledge of his business to permit the admission of his opinion as to its value, leaving the issue of the weight to be accorded that testimony to the jury." Id. The Court in Glosband also cited the decision in Winthrop Products Corp. v. Elroth Co., 331 Mass. 83, 85, 117 N.E.2d 157 (1954), for the proposition that that "an owner

9 10 11 12 13 14 they are based on his personal knowledge and experience with LeapSource and with ICG, 15 16 17 18 19 20 21 22 23 24 25 Defendants also claim that Gilman was "[d]ivorced from the day-to-day operations of LeapSource and ICG." MIL at 6. That is a misleading characterization of Mr. Gilman's testimony that Tina Rhodes (the Controller and a CPA) actually compiled the company's financial records. Ms. Rhodes has testified that Gilman was one of the "very limited management" group that received the company's financial and budgetary documents, Rhodes Dep., at 93:25- 94:9, and see Gilman Affidavit, at ¶¶ 5-8. In any case, the argument is also irrelevant. In Electro Serv., Inc., the defendant argued that the plaintiff's witness was not competent "because he was a full-time attorney and did not participate in the day-to-day operation of [the company]." 847 F.2d at 1526. The plaintiff responded with "citations to the record to demonstrate that [the witness'] experience, management, and knowledge [made] him a competent witness," and the Eleventh Circuit determined that the witness was competent to testify. Id. 28
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of a corporation with knowledge of its property may testify as to the value of that property." Glosband at 980.8 F. Defendants' Arguments Go To The Weight of Mr. Gilman's Testimony Rather Than Its Admissibility

Mr. Gilman is an experienced businessman whose opinions are admissible because

and because they will be helpful to the jury.

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Although the defendants have tried to poke holes in Mr. Gilman's extensive business experience, his responsibilities at LeapSource, and his opinions about the value of LeapSource and of ICG, all those attacks on Mr. Gilman's credibility go to the weight of his testimony, rather than its admissibility, and are therefore issues for the jury. Electro Serv., Inc., 847 F.2d at 1526-27; Diesel Mach., Inc., 328 F. Supp. 2d at 1040 (where record contains evidence of business experience and knowledge of business records, testimony regarding lost profits is admissible and "[q]uestions of credibility and weight are for the factfinder"); Glosband, 21 B.R. at 981 (the president's "testimony revealed him to have adequate

9 10 11 12 13 14 15 16 17 18 is also not relevant to the admissibility of his testimony. Micro Data Base Sys., Inc., 148 19 20 21 22 23 24 25 29
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knowledge of his business to permit the admission of his opinion as to its value, leaving the issue of the weight to be accorded that testimony to the jury."). In Lightning Lube, Inc., the Third Circuit noted that "[t]he modern trend favors the admission of [lay] opinion testimony, provided that it is well founded on personal knowledge and susceptible to specific crossexamination." 4 F.3d at 1175 (quoting Teen-Ed, Inc., 620 F.2d at 403) (alterations in original). Defendants have also suggested that Mr. Gilman's credibility is undermined by his financial interest in the company. MIL. at pp. 3-4. But Mr. Gilman's interest in LeapSource

F.3d at 657 ("MDBS argues that since the evidence consisted entirely of testimony by Dharma's president, and was thus self-serving (as well as purely oral), it cannot provide a ground for an award of damages. This is not correct."). "Questions of credibility and weight are for the fact-finder." Diesel Mach., Inc., 328 F. Supp. 2d at 1040.

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IV.

MR. GILMAN'S OPINIONS ARE ALSO ADMISSIBLE UNDER FRE 702 Although the plaintiffs believe that Mr. Gilman's opinions should appropriately be

analyzed under FRE 701, the same factors already analyzed in the preceding pages of this Response also demonstrate that Mr. Gilman's opinion testimony may be admissible under FRE 702 as the testimony of a "skilled witness." Because Mr. Gilman will be testifying as a fact witness in any case, the plaintiffs also believe that the admissibility and scope of his opinion testimony should also be reserved to the time of trial, when the other evidence of value and the context of Mr. Gilman's testimony can best be evaluated. In determining whether opinion testimony is admissible under Rule 702, the district

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court must keep in mind Rule 702's "broad parameters of reliability, relevancy, and assistance to the trier of fact." Sementilli v. Trinidad Corp., 155 F.3d 1130, 1134 (9th Cir.1998), quoting Desrosiers v. Flight Int'l of Fla., 156 F.3d 952, 960-61 (9th Cir.1998). The Daubert factors were not intended to be exhaustive nor to apply in every case. Kumho Tire, 119 S.Ct. at 1178. However, a trial court may consider the specific factors identified in Daubert where they are reasonable measures of the reliability of proffered expert testimony. Skidmore v. Precision Printing and Packaging, Inc., 188 F.3d 606, 618 (5th Cir.1999) ("Whether Daubert's suggested indicia of reliability apply to any given testimony depends on the nature of the issue at hand, the witness's particular expertise, and the subject of the testimony. It is a fact-specific inquiry" (internal citations omitted)). Likewise, in considering the admissibility of testimony based on some "other specialized knowledge," Rule 702 generally is construed liberally. See, e.g., United States v. Ramsey, 165 F.3d 980, 984 (D.C.Cir.1999) (admission of opinion testimony, given by agent of Drug Enforcement Administration regarding drug trade was not plainly erroneous; while agent was not formally qualified as expert, agent described his qualifications, including his specialized knowledge, education, skill and experience, before giving testimony).

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United States v. Hankey, 203 F.3d 1160, 1168 (9th Cir.), cert. denied, 530 U.S. 1268 (2000) (emphasis added). Nothing in Daubert or its progeny changed the fundamental rule that the factual basis of an expert opinion "goes to the credibility of the testimony, not the admissibility, and it is up to the opposing party to examine the factual basis for the opinion in cross-examination." Southland Sod Farms v. Stover Seed Co., 108 F.3d 1134, 1143 (9th Cir. 1997) ("Technical unreliability goes to the weight accorded a survey, not its admissibility") (citations omitted); Hose v. Chicago Northwestern Transp. Co., 70 F.3d 968, 974 (8th Cir. 1995); Kannankeril v.

9 10 11 12 13 14 15 16 17 18 by paid experts, it is nonetheless a methodology that (as Mr. Gilman has testified from his 19 20 21 22 23 24 25 31
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Terminix Int'l, Inc., 128 F.3d 802, 807, 809 (3d Cir. 1997) (reversing exclusion of expert based on "insufficient factual foundation" and cautioning that the "trial judge must be careful not to mistake credibility questions for admissibility questions"). In this case, Mr. Gilman has used a methodology that is relatively simple, that has been used by others and approved by others, including the GTCR defendants with respect to the valuation of these same businesses, and he has explained how he arrived at the specific multiples that he used and the discount rate that he used. If the methodology employed by Mr. Gilman is not as sophisticated or as elaborate as the methodologies commonly employed

own experience) was actually used by people who were actually in the business of buying and selling other businesses during the relevant time period. In any case, the jury is perfectly capable of evaluating such opinion evidence, and should be permitted to do so.

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V.

CONCLUSION Defendants' motion should be denied. Dated this 7th day of July 2006. BEUS GILBERT PLLC

By

s/ Scot C. Stirling Leo R. Beus Scot C. Stirling Steven E. Weinberger 4800 North Scottsdale Road Suite 6000 Scottsdale, AZ 85251 Attorneys for Individual Plaintiffs and Trustee

STEVE BROWN & ASSOCIATES, LLC Steven J. Brown 1414 E. Indian School Road, Suite 200 Phoenix, AZ 85014 Co-Counsel for Trustee

32
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CERTIFICATE OF SERVICE I hereby certify that on July 7, 2006, I electronically transmitted the attached document to the Clerk's Office using the CM/ECF System for filing and transmittal of a Notice of Electronic Filing to the following CM/ECF registrants: Kevin A. Russell David S. Foster Nicholas B. Gorga LATHAM & WATKINS LLP [email protected] [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Don P. Martin Edward A. Salanga QUARLES & BRADY STREICH LANG, LLP [email protected] [email protected] Attorneys for Defendants GTCR Golder Rauner, LLC, GTCR Fund VI, LP, GTCR VI Executive Fund, LP, GTCR Associates VI, Joseph P. Nolan, Bruce V. Rauner, Daniel Yih, David A. Donnini and Philip A. Canfield Merrick B. Firestone Veronica L. Manolio RONAN & FIRESTONE, PLC [email protected] [email protected] Attorney for Defendant Michael Makings

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Case 2:02-cv-02099-RCB H:\Leapsource\Pleadings\Resp to Gilman MIL.doc Document 433 Filed 07/11/2006 Page 33 of 34

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Richard A. Halloran Jon Weiss LEWIS & ROCA, L.L.P. [email protected] [email protected] Attorneys for Defendants David Eaton and AEG Partners LLC John Bouma James R. Condo Patricia Lee Refo SNELL & WILMER LLP [email protected] [email protected] [email protected] Attorneys for Kirkland & Ellis Steven J. Brown STEVE B